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LOS f, (Part 1): Discuss the three types of exposure to exchange rate risk. ffice ffice" />
Q1. The risk associated with a fall in demand for a firm’s product caused by an appreciation of the home currency of the firm is called:
A) economic exposure.
B) translation exposure.
C) transaction exposure.
Correct answer is A)
Economic exposure is the loss of sales that a domestic exporter might experience if the domestic currency appreciates relative to a foreign currency. That is, if the euro/dollar exchange rate increases, a ffice:smarttags" />U.S. exporter to Europe would see a fall in revenue as the European buyers purchase fewer U.S. exports that have effectively increased in price from the dollar appreciation.
Q2. Derivatives are most often used to hedge which type of exchange-rate risk?
A) Transaction exposure.
B) Translation exposure.
C) Economic exposure.
Correct answer is A)
The three types of exchange-rate risk are transaction exposure, economic exposure, and translation exposure. Futures are most often used to hedge transaction exposure, which is the risk that exchange rates will change the real value (in the domestic currency) of the contracted price.
Q3. The exchange-rate risk associated with falling asset values in foreign subsidiaries caused by currency fluctuations is called:
A) economic exposure.
B) translation exposure.
C) transaction exposure.
Correct answer is B)
Translation exposure refers to the fact that multinational corporations might see a decline in the value of their assets that are denominated in foreign currencies when those foreign currencies depreciate. When the consolidated balance sheet is composed, changing exchange rates will introduce variation in account values from year to year.
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发表于 2009-4-9 10:59
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